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Thursday, July 8, 2010

What happens to the tenant’s deposit when a property sold or worse if the Estate Agent is liquidated?

The tenant’s deposit belongs to the tenant – it is held in trust for any damage claim the landlord might have. If the landlord is holding the deposit, interest on the deposit must be refunded at a minimum of a savings rate. If the estate agent is holding the deposit, it must be held in their trust account.

If the property is sold while there is a tenant in place – the buyer of the property becomes the landlord to the existing terms& conditions of the lease already in place. This means that should the seller of the property (the original landlord) be holding the deposit – then the new owner (current landlord) must refund the tenant the deposit plus interest on expiration of the lease. A word of warning for buyers of property who take over an existing lease – recover the deposit from the seller, include the cost of the future refund of the deposit from the sale price or run the risk of a shortfall when you are required to refund the tenant their deposit.

If the tenant’s deposit is held in trust by the estate agent, and the estate agent’s business is liquidated, the tenant has a claim against the Estate Agents Affairs Board fidelity fund insurance. So the tenant’s deposit is protected.

But what happens if the estate agent is not registered, as required by law, with the Estate Agents Affairs Board. The tenant’s deposit is not covered by the Estate Agents Affair’s Board fidelity fund insurance. The landlord is now legally responsible to refund the tenant their deposit on expiration of the lease, even though the estate agent was holding the deposit. It is therefore advisable for the landlord to ensure he/she hands their rentals properties over to registered estate agents. And even more important that tenant’s do not hand over any money to un-registered estate agents.

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About TPN

TPN is a registered credit bureau dedicated to the South African property industry. Michelle Dickens is MD of TPN and is one of the most respected industry leaders in the South African rental market. Her insights and advice help thousands of estate agents and landlords across South Africa.